Gold Turns Bearish Again On Dollar Strength

Technical Sentiment: Bearish

Key Takeaways

• S. Unemployment Claims released at 283K vs. consensus of 269K;
• Greenback stayed strong in intraday trading;
• Gold broke an important support trendline, extending losses below the most recent Higher Low;
• Price is testing a major cluster at $1.226, with more losses expected ahead.

Since the markets are shifting their attention back to U.S. Dollar strength, Gold reversed from a bullish correction configuration, indicating steep losses are likely to be seen in the near future.

 

Technical Analysis

Gold traded as high as $1,255 this week, eventually bouncing off the 50-Day Simple Moving Average as the bullish correction showed strong signs of weakness. This weakness was confirmed shortly after, when the support trendline caved together with the pivot line at $1,240 (also strengthened by 1H 200-SMA), triggering a sell-off acceleration down to $1,226.

From a swing perspective, Gold has confirmed a reversal having formed a fresh Lower Low.  Stochastic was already well into overbought territory on Daily, confirming $1,255 as a strong top, and it now turning lower as more losses are expected.

Spot is currently trading at $1,227, probing the 100-SMA and 200-SMA cluster. A break below will bring sellers attention to $1,200/04, where multiple swing lows mark a strong support level. The largest area of interest remains $1,182 – the line in the sand drawn by long term traders. A temporary bounce is also likely, however $1,240 should hold as resistance for this bearish scenario to remain valid.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets